Tianhua New Energy rushes toward Hong Kong stock IPO: net profit halved by 78.9% in two years, gross profit margin plummeted by 10.7 percentage points

Core Business: The World’s No. 3 Producer of Battery-Grade Lithium Hydroxide

Suzhou Tianhua New Energy Technology Co., Ltd. (hereinafter referred to as “Tianhua New Energy”) is a key company in China’s new energy lithium battery materials sector. It focuses on the R&D, production, and sales of lithium battery materials. According to data from Frost & Sullivan, based on the company’s sales volume and revenue in 2025, it ranks as China’s largest and the world’s third-largest producer of battery-grade lithium hydroxide. At the same time, it ranks fourth among producers of battery-grade lithium compounds in China and globally.

The company’s business layout consists of three segments. Of these, new energy lithium battery materials are its core business, contributing 88.3% of revenue in 2025; electrostatic-dissipative and ultra-clean technology products and medical device business account for 8.0% and 3.7%, respectively. Core products such as battery-grade lithium hydroxide and lithium carbonate are widely used in new energy vehicle power batteries and energy storage systems. By the end of 2025, the company had established three major production bases in China, with annual production capacity for lithium compounds of 165k tons, and it has built a global lithium resource network covering Africa, South America, Oceania, and Asia through a combination of equity investments, long-term off-take agreements, and self-operated mines.

Revenue Performance: Up 14.2% in 2025, but Not Back to 2023 Levels

The company’s revenue over the past three years has shown significant fluctuations, following a pattern of “fall first, then rise” from 2023 to 2025:

The main driver of revenue fluctuations is the pricing of lithium compound products. In 2024, revenue from new energy lithium battery materials fell sharply by 40.7%, mainly because the average price of battery-grade lithium hydroxide plummeted from 256.5 thousand yuan/ton in 2023 to 71.6 thousand yuan/ton. In 2025, revenue rebounded by 15.9%, benefiting from expansions in lithium carbonate production capacity and an increase in sales volume. In that year, lithium carbonate sales reached 27,089 tons, with an average selling price of 65.2 thousand yuan/ton. It is worth noting that the company’s revenue of RMB 165k in 2025 is still 27.9% lower than RMB 7.55B in 2023, and has not yet recovered to the earlier peak.

Net Profit: Down for Two Consecutive Years — in 2025, Halved vs. 2023

The company’s profitability has continued to deteriorate. Net profit decreased from RMB 2.16 billion in 2023 to RMB 457 million in 2025, with a cumulative decline of 78.9% over two years:

In 2025, the company’s net margin was only 6.1%, down 14.5 percentage points from 20.6% in 2023. This reflects the severe squeeze on profit margins caused by a price war in the industry. The company explained that the decline in performance was mainly due to “price fluctuations of lithium compound products across the entire industry,” as well as increased R&D investment. It is notable that the 55.6% decline in net profit in 2025 far exceeds the 14.2% increase in revenue over the same period, indicating that the company’s cost-control capability faces serious challenges.

Gross Margin: Core Business’s Gross Margin Nearly Halved

The company’s overall gross margin declined steadily from 24.7% in 2023 to 14.0% in 2025, falling by 10.7 percentage points over three years. Within this, the gross margin for its core new energy lithium battery materials business fell even more significantly:

The gross margin for new energy lithium battery materials nearly halved, mainly due to a double squeeze from falling lithium prices and rising raw material costs. It is worth noting that the company’s raw material costs in 2025 were RMB 10.47B, accounting for 74.1% of cost of sales, while in the same period, spending on lithium concentrate accounted for 36.8% of total procurement. Supply-chain risks are highly concentrated. By contrast, the gross margin for the medical devices business increased by 5.3 percentage points against the trend, becoming the only business segment with continuously growing gross margin for the company; however, its smaller scale limits its contribution to overall profit.

Customer Concentration: The Top Five Customers Contribute Over Half of Revenue

The company’s customer concentration remains high. From 2023 to 2025, the revenue contribution of the top five customers was 68.4%, 59.0%, and 55.9%, respectively. Although the figures show a downward trend, they remain at a relatively high level. The largest customer’s revenue share was 24.3%, 19.0%, and 23.0% respectively, with no clear improvement in customer dependence.

Among them, CATL Group, as the company’s second-largest shareholder (holding 13.54%), generated revenue of RMB 4.81B in 2025, accounting for 23.0% of total revenue. It is both an important customer and a related party, entailing certain business-dependence risk. A highly concentrated customer structure puts the company in an unfavorable position during negotiations and also makes the company significantly exposed to major customer order fluctuations affecting performance.

Supplier Concentration: Purchases from the Top Five Suppliers Account for Over One-Third

Although the company’s supplier concentration has declined, it remains at a high level. From 2023 to 2025, the purchasing amounts of the top five suppliers accounted for 71.8%, 39.4%, and 36.8% of the total, respectively. The largest supplier’s share of purchases dropped from 42.4% to 12.8%, indicating some improvement in supply-chain concentration but that risks still exist.

In 2025, purchases from the first-largest supplier reached RMB 788 million, mainly for lithium concentrate procurement, reflecting that there is still concentration risk in upstream resource supply. The company explained that tight supply of lithium mine resources has increased dependence on a small number of suppliers, but this also exacerbates cost pressure stemming from volatility in raw material prices. Especially in a market environment with sharply fluctuating lithium prices, high supplier concentration will amplify the risk of cost volatility.

Related-Party Transactions: Sales to CATL Account for 23%

The company has significant related-party transactions with its major shareholder, CATL Group. In 2025, the company sold products to CATL totaling RMB 1.74B, and provided processing services of RMB 388 million, together accounting for 28.1% of total revenue. At the same time, related-party transactions with Tianyi Lithium Industry Group (the company holds 75%, and CATL holds 25%) included purchases of materials of RMB 1.74B and sales of materials of RMB 1.53B, with a relatively large transaction scale.

Although the company states that related-party transaction pricing follows fair principles, such a high proportion of related-party transactions may still raise questions about transaction independence and pricing fairness, creating risks of value transfer. As CATL, the second-largest shareholder, is also the company’s largest customer, this dual relationship could affect the independence of the company’s business decisions and carries potential risks of conflicts of interest.

Financial Challenges: Current Ratio Continues to Worsen — Operating Cash Flow Turns Negative

The company’s financial health has shown warning signals, with multiple key financial indicators deteriorating significantly:

In 2025, net cash from operating activities turned from positive to negative, with net outflow of RMB 322 million, mainly due to an increase in inventories and slower recovery of accounts receivable. The current ratio declined from 3.7 to 1.9, below the industry average, increasing short-term solvency pressure. The asset-liability ratio rose to 32.2%, up 13.1 percentage points from 2024, mainly because interest-bearing bank borrowings surged from RMB 1.39B to RMB 1.23B. Interest expense increased from RMB 64.04 million in 2023 to RMB 99.83 million in 2025, and pressure from financial expenses continued to grow.

Peer Comparison: Gross Margin Significantly Lower Than Industry Leaders

Compared with domestic peers, Tianhua New Energy’s gross margin lags notably:

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The company explained that the gross margin gap is mainly due to a lower resource self-sufficiency rate (in 2025, the share of self-supplied lithium concentrate was only 15.5%), causing raw material costs to be higher than the industry average. Although the company has annual production capacity of 165k tons for lithium compounds, insufficient resource assurance is a shortcoming in profitability. In 2025, the company’s gross margin was not only 2.8 percentage points lower than the industry average, but also significantly lower than leading enterprises by 8.5–10.5 percentage points, indicating a clear competitive disadvantage.

Ultimate Controller and Equity Structure: The裴 Zhenhua family holds 18.87% in total

The company’s shareholding structure is relatively dispersed. The largest shareholder group consists of Mr. Pei Zhenhua and his wife, Rong Jianfen, holding a total of 18.87% of the equity. CATL, as a strategic investor, holds 13.54%, making it the second-largest shareholder. The shareholding structure shows that the company has no single controlling shareholder; major decisions require consultation among shareholders, which may affect strategic stability.

A dispersed shareholding structure may reduce decision-making efficiency, especially during industry downturn cycles when fast responses to market changes are needed. Coordination of interests among shareholders may become a constraining factor. At the same time, CATL, the second-largest shareholder, is both an important customer and a shareholder, which could also lead to conflicts of interest.

Core Management Team: Average Tenure Over 14 Years — Significant Pay Gap

The company’s core management team is relatively stable, with an average tenure of more than 14 years. Chairman Mr. Pei Zhenhua is 66 years old and is the company’s founder, with over 30 years of industry experience; President Mr. Liu Deguang is 53 years old and previously worked at companies such as Tianma Microelectronics. In 2025, the total compensation for directors was RMB 8.70 million. Mr. Pei Zhenhua’s compensation was not separately disclosed, but the overall compensation level is lower than that of industry-compared companies.

It is worth noting that against the backdrop of the company’s continued performance decline, the total compensation of directors and senior management in 2025 increased by 63.3% compared with 2023, sharply contrasting with the 78.8% decline in net profit in the same period. Among them, Executive Director Liu Deguang’s compensation in 2025 reached RMB 3.133 million, representing an increase of more than 100% from 2024. Such inverse changes between performance and compensation have led the market to question the reasonableness of the incentive mechanism.

Risk Factors: Seven Risks Worth Investors’ Attention

Risk of Lithium Price Volatility: Price Drop Exceeds 75%, Severely Affecting Profitability

From 2023 to 2025, the price of battery-grade lithium hydroxide fell from 256.5 thousand yuan/ton to 71.6 thousand yuan/ton, a drop of 72.1%, directly leading to a sharp decline in the company’s net profit. Lithium price is a core factor affecting the company’s profitability; its future trend is highly uncertain. If lithium prices remain weak or fall further, it will place greater pressure on the company’s performance.

Customer Concentration Risk: Top Five Customers Contribute Over Half of Revenue

The company’s customer concentration remains high. In 2025, the revenue share of the top five customers reached 55.9%, and the largest customer’s revenue share was 23.0%. Fluctuations in orders from major customers or the termination of cooperation will cause a major impact on the company’s operations, especially in the context of intensified competition in the new energy industry, where the risk of customer loss cannot be ignored.

Raw Material Supply Risk: Dependence on Imported Lithium Concentrate

The company’s procurement of lithium concentrate is highly dependent on imports. In 2025, lithium concentrate procurement accounted for 36.8% of total procurement. Changes in geopolitics, adjustments to trade policies, and fluctuations in global lithium resource supply may lead to disruptions in raw material supply or a sharp rise in costs, posing major risks to the company’s production and operations.

Production Capacity Utilization Risk: In 2025, Overall Capacity Utilization Was Only 69.3%

Although the company’s annual production capacity for lithium compounds is 165k tons, its overall capacity utilization rate in 2025 was only 69.3%, below the industry average. Insufficient capacity utilization increases the allocation of fixed costs, further eroding profit margins, and also reflects the company’s limited ability to adjust capacity in the face of fluctuations in market demand.

Technology Iteration Risk: Solid-State Battery Technology’s Commercialization Disruption

Accelerating commercialization of solid-state battery technology could significantly disrupt demand for existing liquid lithium battery materials. If the company fails to keep up with technological development trends in a timely manner, its current products may face the risk of declining market demand. Insufficient R&D investment (in 2025, R&D investment accounted for only 1.66%) further exacerbates the risk of technology iteration.

Environmental Protection and Compliance Risk: Environmental Investment Continues to Increase

Production of lithium battery materials faces stringent environmental protection requirements. In 2025, the company’s environmental protection investment increased by 45% year-on-year. As environmental standards continue to rise, the company may need to keep increasing environmental protection spending, which will further increase cost pressure. If environmental violations occur, it may also face risks such as fines and shutdowns.

Related-Party Transaction Risk: High Proportion of Related-Party Transactions with CATL

The company’s related-party transactions with CATL Group account for 28.1%. Although the company claims that transaction pricing is fair, a high proportion of related-party transactions may still raise questions about transaction independence and pricing fairness, creating risks of value transfer.

Conclusion

As a leading domestic lithium battery materials company, Tianhua New Energy has certain advantages in terms of production capacity scale and customer resources. However, it faces multiple challenges, including lithium price volatility, declining profitability, and worsening financial indicators. In this Hong Kong IPO, the company plans to raise funds for capacity expansion and resource assurance. If it can successfully improve its resource self-sufficiency rate and optimize its product mix, it may be able to improve profitability.

However, investors need to closely watch the following key risk points: the continued impact of lithium price trends on the company’s earnings; the fairness of related-party transaction pricing; the risks arising from concentration of customers and suppliers; short-term solvency pressure caused by the declining current ratio; and the risk that gross margin may further deteriorate due to intensified industry competition. In a downturn phase of the industry cycle, there is still considerable uncertainty about whether the company can achieve a recovery in profitability. Investors are advised to evaluate its investment value prudently.

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